Viva reported FY25 EBITDA down 6%, but 2H25 EBITDA up 33%. The turnaround in fortunes in Convenience is encouraging, albeit higher fuel margins in 2H25 may not be sustained. Cost savings from FY25 and improving shop gross margins help lift our FY26e Convenience EBITDA to $246 million. We can see a path to $336 million by FY28e, or 71% higher than FY25. However, executing on a supply chain transition and OTR store conversions will be necessary. We see asset sales of $150-200 million as sufficient to bring down leverage from 3.0x in FY25 to 2.0x in FY27e.

Ampol reported a good FY25 result, once again characterised by higher margins on lower fuel volumes. The company’s focus is subtly shifting towards more volume. Near-term, Ampol faces a headwind from lower refinery margins. Ampol has a few key catalysts in the next six months with potential change to government support on its refinery and ACCC approval of the EG acquisition. While there are these positives, weaker refinery margins and higher net interest keep us somewhat cautious.

Viva reported a lift in group fuel volumes, better gross margins in its convenience stores and higher refining margin in 4Q25. While all these signs are encouraging, the refining margin increase was smaller than Ampol’s given maintenance and power outages. Moreover, the improvement in convenience gross margin was made on a lower sales base. Viva’s cost savings seem to be flowing through but the company will need to show a more meaningful lift in sales from the OTR conversions in order to see any re-rating.

Metcash reported a 2% drop in EBIT for 1H26. The company’s sales trends are likely to soften a little from here, particularly as it laps Woolworths DC strikes and the Black Friday boost to Total Tools dissipates. The swing factor for Metcash is its corporate hardware stores that need a meaningful upswing in the residential construction cycle. Profit margins are depressed and should recover. The combination of optionality around hardware upside, contract wins in convenience and a good dividend yield give us reason to be positive.

The Australian legal tobacco market has shrunk by close to 70% over six years yet nicotine consumption is up over the same timeframe given illicit tobacco and vapes. While the declines are not over, we can see a path to stabilisation in legal tobacco in the second-half of 2026 as legislation on outlets and stronger border force efforts reduce illicit tobacco and vape supply. For Coles, Woolworths and Metcash, stabilisation in tobacco will add 1% to 2% to food sales growth, while the group EBIT drag of 1%-2% per annum will also fade away from FY27e onwards. For Ampol and Viva, the sales impact is likely to be more meaningful boosting convenience shop sales by as much as 7%. Viva has the largest tobacco exposure at 5% of group EBIT.

We transfer coverage of Viva Energy from Scott Hudson to Craig Woolford. In this report, we address the outlook for its convenience strategy and balance sheet position. We are positive on the refining margin outlook but expect the OTR conversions to be slower and more costly to complete.

Metcash’s 18-week AGM trading update highlighted a slowdown in sales. For the first 7 weeks, group sales were up 4.7% and the next 11 weeks, to the end of August 2025, sales dropped 1.2%. The biggest contributors to the slowdown were declining tobacco sales (-34%) and annualising Superior Foods acquisition (now trending at 2.7% growth). Metcash’s underlying results show sales trends slightly lower than industry growth other than liquor. Hardware sales trends remain sluggish, albeit improving over recent months.

Woolworths has had a rough FY25 for a range of reasons. However, looking forward, we are more interested in the company’s strategic direction under CEO Amanda Bardwell. We expect more details in coming months that may lead to further “simplification” or cost savings and decisive action on underperforming businesses like Big W, HealthyLife and Marketplus. Woolworths is also likely to double-down on its core proposition as “the fresh food people”. In this report, we assess the extent of any potential strategic shift by Woolworths and the implications for the broader industry. As Woolworths recovers, others will feel the impact.

Coles reported overall sales growth of 3.4% for 3Q25. The solid result was driven by its online growth, which has mixed fortunes given the lower margins online. Liquor sales remain soft and there will be rebranding costs over the next 12 months dragging on profit margins. Declines in tobacco sales are also an earnings headwind. We lower our EPS slightly by -0.8% in FY25e and -1.1% in FY26e.

Metcash provided a trading update indicating 1H25e underlying NPAT will be between $132-$135 million. The key driver has been the decline in sales and negative operating leverage in Metcash’s IHG hardware stores. Tough conditions are likely to prevail in 2H25e as well, albeit we are at a low point in the building cycle, providing scope for margin recovery at some point.